•ZnO nancrystals doped with Mg were prepared from sol–gel method.•Structural and optical properties of ZnO:Mg nanocrystals were investigated.•Good crystalline quality of ZnO nanocrystals was reported after Mg doping.•Good photocatalytic activity of Mg doped ZnO nanocrystals was demonstrated under sun light illumination. Undoped and Mg doped ZnO nanocrystals (NCs) ZnO:x%Mg (x=1, 2, 3, and 5) were synthesized using sol–gel method. The structural and optical properties were investigated by X-ray diffraction (XRD), Raman spectroscopy, diffuse reflectivity, and photoluminescence (PL). XRD analysis demonstrates that all prepared samples present pure hexagonal wurtzite structure without any Mg related phases. The NCs size varies from 26.82nm to 42.96nm with Mg concentrations; it presents an optimal value for 2% of Mg. The Raman spectra are dominated by the E2high mode. For highly Mg doping (5%), the occurrence of silent B1(low) mode suggested that the Mg ions do substitute at Zn sites in the ZnO lattice The band gap energy was estimated from both Tauc and Urbach methods and found to be 3.39eV for ZnO:2%Mg. The PL spectra exhibit two emission bands in the UV and visible range. Their evolution with Mg doping reveals the reduction of defect density in ZnO at low Mg doping by filling Zn vacancies. In addition, it was found that further Mg doping, above 2%, improves the photocatalytic activity of ZnO NCs for photodegradation of Rhodamine B (RhB) under sunlight irradiation. The efficient electron–hole separation is the main factor responsible for the enhancement of photocatalytic performance of Mg doped ZnO NCs. Through this work, we show that by varying the Mg contents in ZnO, this material can be a potential candidate for both optoelectronic and photocatalytic applications.